Business Standard

Firms' forex exposure under lens

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Anindita Dey Mumbai
The Reserve Bank of India (RBI) has directed all commercial banks to submit data for unhedged corporate exposure in the foreign exchange market even as the rupee slipped to a 11-month low of 45.16 to a dollar today in volatile trade, losing 27 paise in a single day.
 
The Indian unit hit an intra-day low of 45.23 before recovering on dollar sales by some exporters.
 
According to banking sources, data on hedging have been sought for those importers who do not have natural hedge. A natural hedge is created when a corporate entity has enough export obligation to support import payments.
 
Commercial banks have also been instructed to downgrade the internal rating of corporate customers if they have substantial uncovered import obligations.
 
In fact, the RBI had asked banks to incorporate hedging of foreign exchange exposure as one of the criteria for internal rating of their corporate customers, said a source.
 
This is because despite repeated warnings by the RBI, some companies have been maintaining unhedged exposure at around $7-10 billion.
 
Such exposures are mostly maintained in the long-term forwards of beyond six months.
 
The RBI has also initiated a survey to gauge the extent of open import exposures. According to foreign exchange dealers, the RBI is of the view that panic importer covering is adding to the pressure on the spot rupee which had depreciated by around 2 per cent this month.
 
The demand for the dollar by non-oil importers is adding to the huge demand by oil companies which have to step into the spot market for making payments for their crude purchases. At a time when the current account is in deficit, such uncovered positions exert pressure on the rupee.
 
The outlook on the rupee continues to be bearish as foreign exchange inflows have taken a backseat and non oil imports have shot up. The cancellation of currency option "ration range forward " had also triggered the demand for dollars, added bankers.
 
Under this option, a corporate pledges to pay dollar receivables to a bank in multiples of three or five times of the underlying amount for which the option has been contracted if the rupee breaches a certain level.
 
With spot rupee breaching 44.50/60, which was quite unexpected a few weeks back, such options got cancelled leading to dollar-selling by corporates.
 
The dollar demand, in some cases, has to be met from the market as there is usually a lag between the dollar receivables and payments to be made to banks.

 
 

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First Published: Oct 19 2005 | 12:00 AM IST

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